Proving fraud – the basic principles

The recent judgment of Kazakhstan Kagazy Plc & 5 Others (Claimants) v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva (Defendants) & Harbour Fund III LLP (Additional Party) [2018] EWHC 369 (Comm) handed down on 28 February 2018 dealt with consequential orders following the court’s earlier substantive judgment in this fraud claim – [2017] EWHC 3374 (Comm) – given by Mr Justice Picken on 22 December 2017.

Paragraphs 155 to 165 of that earlier liability judgment helpfully set out the basic and established principles relevant to proving fraud:

  1. Fraud has to be both clearly alleged and proved: Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at p. 407 per Millett LJ (as he then was).
  2. The court should not have to rely on inferences from facts not pleaded: Elena Baturina v Alexander Chistyakov [2017] EWHC 1049 (Comm).
  3. Nor will it find fraud from facts which have been pleaded but are consistent with honesty: Three Rivers District Council v Bank of England (No 3) [2001] 2 All ER 513 per Lord Millett at para. 186.
  4. It is however perfectly legitimate for the Court to proceed by way of inference from circumstantial evidence: JSC BTA Bank v Ablyazov [2012] EWCA Civ 1411 at para. 52 per Rix LJ.
  5. Although fraud need only be proved to the civil standard of probability, in practice more convincing evidence will often be required to establish fraud than other types of allegation (see Clerk & Lindsell on Torts, 21st Ed., paragraph 18-04):

    “When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence …”

    [In re H (Minors) [1996] AC 563 at pp. 586-7 per Lord Nicholls]

    “The burden of proof lies on the [Claimants] to establish their case. They must persuade me that it is more probable than not that [the Defendants] made fraudulent misrepresentations. Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent improbabilities must be assessed in the light of the actual circumstances of the case …”.

    [Foodco UK LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at para. 3 per Lewison J (as he then was)]

 

These cases provide a useful reminder of the importance of careful and clear pleading, and proper consideration of the evidence available and its proper and most appropriate conclusion.

 

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